Over the summer the outlook for the global economy weakened considerably and global equity markets fell sharply. By the end of September the FTSEurofirst 300 index, for example, was 22% below its peak in mid-February. The weakening in sentiment reflects several factors. The US and several European countries reported disappointing GDP growth for Q2; Standard and Poor’s stripped the US of its AAA credit rating as the debt ceiling was raised at only the last minute; and the eurozone debt crisis has steadily escalated, with no clear strategy in place to resolve it. These events have resulted in sharp falls in global equity markets and broader economic sentiment as investors worry about the durability of the economic recovery.
Given the clear downside risks present we assess what impact a disorderly default in three specific peripheral eurozone economies might have on European office markets. To do this we use an economic scenario supplied to us by Oxford Economics.
|Defining the economic scenario||3|
|Impact on occupier markets||4|
|Impact on investor markets||5|
|Impact on Fair Value assessment||6|